Questions regarding Panel Data

1. Seemingly Unrelated Regressions (SUR):

Seemingly unrelated regressions (SUR) is a class of multivariate regression ( multiple regression )
models, normally belonging to the sub-class of linear regression models. A distinctive feature of SUR
models is that they consist of several unrelated systems of equations "Unrelated" here means that
any variable, dependent and or independent, is present in only one system or, in other words, the
systems have no common variables.

Normally, one would try to solve such systems of equations independently, e.g. using the least
squares method for each system separately. But in SUR models the error terms from different
systems are correlated. At the same time, according to the general theory of the least square method,
which takes covariances of errors into account, such systems should be solved as whole set of
equations. Otherwise, the minimal variance of the errors in estimated regression parameters cannot
be achieved.

The SUR is estimated to investigate the causal relationship between portfolio volume and market
returns across the low and high institutional ownership portfolios within each size and volume
quartile over a period of time in a specific country.

Why a dynamic panel model preferable?

The model with dynamic panel data uses the lags of the dependent variable as explanatory
variables. That means dynamic panel data models are useful when the dependent variable depends
on its own past realizations: Although the coefficients on lagged dependent variables might be far
from our interest, the introduction of these lags becomes crucial to control for the dynamics of the
process

Multiple Choice Questions

2) The difference between an unbalanced and a balanced panel is that

a. you cannot have both fixed time effects and fixed entity effects regressions

b. an unbalanced panel contains missing observations for at least one time period or one entity

3) The Fixed Effects regression model

e. has n different intercepts

4) In the Fixed Effects regression model, you should exclude one of the binary variables for the
entities when an intercept is present in the equation

i. because one of the entities is always excluded.

j. because there are already too many coefficients to estimate

k. to allow for some changes between entities to take place.

l. to avoid perfect multicollinearity

5) In the Fixed Effects regression model, using (n – 1) binary variables for the entities, the coefficient
of the binary variable indicates

o. the difference in fixed effects between the ith and the first entity

7. Consider estimating the effect of the beer tax on the fatality rate, using time and state fixed effect
for the Northeast Region of the United States (Maine, Vermont, New Hampshire, Massachusetts,
Connecticut and Rhode Island) for the period 1991-2001. If Beer Tax was the only explanatory
variable, how many coefficients would you need to estimate, excluding the constant?

a. 18

b. 17

8. In the panel regression analysis of beer taxes on traffic deaths, the estimation period is1982-1988
for the 48 contiguous U.S. states. To test for the significance of time fixed effects, you should calculate
the F-statistic and compare it to the critical value from your,qF distribution, where q equals

A. 47

9. When you add state fixed effects to a simple regression model for U.S. states over a certain time
period, and the regression R^2 increases significantly, then it is safe to assume that

a. the included explanatory variables, other than the state fixed effects, are unimportant.

b. state fixed effects account for a large amount of the variation in the data.

12. The main advantage of using panel data over cross sectional data is that it

a. gives you more observations.

b. allows you to analyze behavior across time but not across entities.

c. allows you to control for some types of omitted variables without actually observing them.

Consider the special panel case where T = 2. If some of the omitted variables, which you hope to
capture in the changes analysis, in fact change over time, then the estimator on the included change
regressor

B) May still be unbiased

With Panel Data, regression software typically uses an "entity-demeaned" algorithm because

C) the number of estimates to calculate can become extremely large when there are a large number
of entities
If you included both time and entity fixed effects in the regression model which includes a constant,
then

C) you must exclude one of the entity binary variables and one of the time binary variables for the
OLS estimator to exist.

Time Fixed Effects regression are useful in dealing with omitted variables

B) if these omitted variables are constant across entities but vary over time

Indicate for which of the following examples you cannot use Entity and Time Fixed Effects: a
regression of

B) the (log of) earnings on the number of years of education, using the Current Population Survey of
60,000 households for March 2006.

In the panel regression analysis of beer taxes on traffic deaths, the estimation period is 1982-1988 for
the 48 contiguous U.S. states. To test for the significance of entity fixed effects, you should calculate
the F-statistic and compare it to the critical value from your Fq,∞ distribution, where q equals

D)47

One of the following is a regression example for which Entity and Time Fixed Effects could be used: a
study of the effect of

D) 26

A pattern in the coefficients of the time fixed effects binary variables may reveal the following in a
study of the determinants of state unemployment rates using panel data:

A) macroeconomic effects, which affect all states equally in a given year.

In the panel regression analysis of beer taxes on traffic deaths, the estimation period is 1982-1988 for
the 48 contiguous U.S. states. To test for the significance of time fixed effects, you should calculate
the F-statistic and compare it to the critical value from your Fq,∞ distribution, which equals (at the 5%
level)

B) 2.10

In panel data the regressor error

A) Is likely to be correlated over time within an entity

It is advisable to use clustered standard errors in panel regressions because

D) the fixed effects estimator is asymptotically normally distributed when n is large